||The examples and perspective in this article may not represent a worldwide view of the subject. (August 2010)|
A credit bureau or consumer reporting agency (United States), or credit reference agency (United Kingdom), credit reporting body (Australia) is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill-paying habits. Credit information such as a person’s previous loan performance is a powerful tool to predict his future behavior. Such credit information institutions reduce the effect of asymmetric information between borrowers and lenders, and alleviate problems of adverse selection and moral hazard. For example, adequate credit information could facilitate lenders in screening and monitoring borrowers as well as avoid giving loans to high risk individuals. This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate and other terms of a loan. Interest rates are not the same for everyone, but instead can be based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating. Consumers with poor credit repayment histories or court adjudicated debt obligations like tax liens or bankruptcies will pay a higher annual interest rate than consumers who don't have these factors. Additionally, decision-makers in areas unrelated to consumer credit, including employment screening and underwriting of property and casualty insurance, increasingly depend on credit records, as studies have shown that such records have predictive value. At the same time, consumers also benefit from a good credit information system because it reduces the effect of credit monopoly from banks, and it provides incentives for borrowers to repay their loans on time.
In the U.S., credit bureaus collect and aggregate personal information, financial data, and alternative data on individuals from a variety of sources called data furnishers with which the bureaus have a relationship. Data furnishers are typically creditors, lenders, utilities, debt collection agencies and the courts (i.e. public records) that a consumer has had a relationship or experience with. Data furnishers report their payment experience with the consumer to the credit bureaus. The data provided by the furnishers as well as collected by the bureaus are then aggregated into the credit bureau's data repository or files. The resulting information is made available on request to customers of the credit bureau for the purposes of credit risk assessment, credit scoring or for other purposes such as employment consideration or leasing an apartment. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. To simplify the analytical process for their customers, the different credit bureaus can apply a mathematical algorithm to provide a score the customer can use to more rapidly assess the likelihood that an individual will repay a particular debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once a year to ensure they are accurate.
In addition to providing credit information, these services have become authoritative sources of identity information against which people can be verified using an identity verification service and knowledge-based authentication.
Commercial credit reporting and scoring bureaus also exist, and can be used to evaluate the likelihood of a business paying creditors. Examples of commercial credit reports are the Paydex score from Dun & Bradstreet, the Experian Intelliscore, the CPR Score from Cortera, and the CIC Score and NACM National Trade Credit Report from the National Association of Credit Management. TransUnion and Equifax are also examples of commercial credit bureaus.
The establishment of Credit Information Bureau (India) Limited (CIBIL), India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing non-performing assets (NPAs) while improving credit grantors' portfolio quality.
CIBIL was promoted by State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) to provide comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members.
With two other major credit bureau coming to India in 2010 (Equifax and Experian) the Credit Environment is changing really fast and the importance of credit rating is being felt across length and breadth of the country
Around the same time, RBI also granted operating license to High Mark Credit Information Services - the only start-up in this oligopoly. High Mark launched India's first micro finance bureau in early 2011 & today operates the world's largest micro finance bureau besides offering traditional bureau services for the Retail lending industry.
eCIB ECIB is a software for monitoring credit reports all across Pakistan. State Bank of Pakistan monitors the Software and all the Financial Institutions in Pakistan are required to have this software installed. A monthly process updates the reports at the State Bank end.
The membership with CIB, as per instructions of SBP, is mandatory for all Banks, Developmental Financial Institutions (DFIs) and Micro Finance Banks (MFBs) respectively. No financial institution can access the CIB database without obtaining membership of CIB of State Bank of Pakistan.
All member financial institutions are required to submit entire borrowers' records online to CIB on monthly basis. This information is submitted within a period of fortnight from the date of close of month.
The Electronic Credit Information Bureau (CIB) was established by State Bank of Pakistan (SBP) in December, 1992. The scope and activities of CIB are governed under the provisions of Banking Companies Ordinance (BCO), 1962. The Section 25(A) vests powers with SBP to call for credit information in such manner as it may deem necessary and make such information available to any banking company.
Credit Reference Agencies
Most banks and other credit-granting organisations subscribe to one or more of these organisations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organisations are expected to provide relevant data to maintain the common data pool.
Credit reference agencies are bound by the Data Protection Act 1998, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date. Individuals have a legal right to access data held on them. The Act specifically gives consumers the right to request to a copy of their credit file by post for a fee of £2 The UK credit reference agencies will also allow consumers to access their credit report on-line free for a trial period, after which a monthly or quarterly fee may be charged for continued access.
Credit reports can also be obtained through services such as Checkmyfile which provides a Multi-Agency Credit Report with Free Credit Scores, including aggregated data from all three credit reference agencies.
Consumer Credit Act (1974)
The activities of Credit Reference Agencies are governed by the Consumer Credit Act 1974.
In the United States, the legal term for a credit bureau under the federal Fair Credit Reporting Act (FCRA) is consumer reporting agency — often abbreviated in the industry as CRA.
In the United States, key credit bureau consumer protections and general rules or governing guidelines for both the credit bureaus and data furnishers are the federal Fair Credit Reporting Act (FCRA), Fair and Accurate Credit Transactions Act (FACTA), Fair Credit Billing Act (FCBA), and Regulation B.
Two government bodies share responsibility for the oversight of credit bureaus and those that furnish data to them. The Federal Trade Commission (FTC) has oversight for the consumer credit bureaus. The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks with regard to the data they furnish credit bureaus.
Most U.S. consumer credit information is collected and kept by the four national traditional credit reporting agencies: Experian (formerly TRW Information Systems & Services and the CCN Group), Equifax, TransUnion, and Innovis (which was purchased from First Data Corporation in 1999 by CBC Companies). These organizations are for-profit businesses and possess no government affiliation. Though they are competitors, they have formed a trade organization called the Consumer Data Industry Association (CDIA) to establish reporting standards and lobby on behalf of their industry issues in Washington. Current reporting standards accepted by the four U.S. CRAs are Metro and Metro2. The Metro2 standard is defined in the annual CDIA publication, the Credit Reporting Resource Guide. Consumers are entitled to a free annual credit report from each of the three nationwide consumer reporting agencies, Equifax, Experian and TransUnion. Consumers can go to annualcreditreport.com, the Internet site maintained by the three companies, to get their free report.
There are dozens of other similar information collection and reporting firms that analyze and sell information about consumers for other purposes, including those who aggregate multiple credit data sources and provide lenders with customized analytical tools. Furthermore, there are also non-traditional credit reporting agencies.
PRBC (Payment Reporting Builds Credit, Inc.) is a national alternative credit bureau. Incorporated in March 2002, PRBC enables consumers to self-enroll and build a positive credit file by reporting their on-time payments (such as rent, utilities, cable, and phone) that are not automatically reported to the three traditional credit bureaus.
In the U.S., there are six business or commercial bureau repositories (in alphabetical order): Cortera, Dun & Bradstreet, Experian Business, Equifax Small Business Financial Exchange (SBFE), PayNet, and Southeastern Association of Credit Management (SACM).
Tort liability for business defamation
In the case of Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749 (1985) the U.S. Supreme Court held that a credit reporting agency may be liable if it was careless in reporting an impending or past bankruptcy filing of a business that is not a public figure.
The Saudi Credit Bureau (SI SIMAH MAH) is the first and sole licensed national credit bureau offering consumer and commercial credit information services to respective members in the Kingdom of Saudi Arabia. It was established in 2002 and began operating on the ground in 2004 under the supervisory umbrella of Saudi Arabian Monetary Agency (SAMA).
The idea goes back into 1998 when national commercial banks and SAMA thought of establishing a Saudi credit bureau offering consumer and commercial information. Meetings were held for this purpose and officials were assigned to coordinate with the World Bank to consider existing international experiences for some countries to establish a credit bureau based on methodological and knowledge approaches to contribute to the Saudi national economy.
S SIMAH IMAH was then established to operate within the context of the current banking act and regulations issued by SAMA.
In the United States, 90% of credit reports provided by credit bureaus contain inaccuracies. According to the U.S. General Accounting Office (GAO), common causes of errors broadly fall into one of two categories: inclusion of incorrect information and exclusion of correct information. Reasons for the inaccuracies include consumers providing inaccurate information to the credit bureaus; incorrect or incomplete data input by furnishers, or failing to provide data to the credit bureau; and incorrect or incomplete data (or data applied to the wrong consumer) by the credit bureau. According to Avery, Calem, and Canner in Credit Report Accuracy and Access to Credit, "the parties that bear the costs of correcting errors or providing more timely and complete information [data furnishers and credit bureaus] may not receive much benefit from the improvement in accuracy."
The formula to calculate consumer credit scores by a credit reporting agency is proprietary and considered a trade secret of the agency in the United States.
Some credit bureaus in the United States provide two credit scores - an 'educational' score to the consumer and a customary FICO-like score to the lender or business. Liz Weston writes that some consumer advocates refer to these other [educational] credit scores as "FAKO scores" (a play on acronym of FICO). In consideration of the fact that algorithms which rate people are used in a discriminatory fashion to deny people legal rights (employment, insurance, credit, etc.), those very algorithms act as law. They law says that if one does "this" or if one "does" that, then they will be afforded different treatment and opportunities. What needs to be done though remains a secret. Therefore people are called on to abide by a secret law. At least two things need to be examined: First is that the operation of a more general "chilling effect" that imposing a non disclosed law may have and; Secondly the social effects of discrimination, which take an entirely new light in the context of no longer discriminating against race creed color age or religion, but on the basis of a number, a number which has been assigned to all members of society reflecting information about that person which is unknown. Accordingly there can be no definition at present of what information credit repositories collect or even what the use of that information is or what it reflects. These questions can only be answered if the algorithms were publicized and expert statisticians were permitted to examine them and improve on the intent of the model, which intent is also undisclosed.
According to David Szwak, a partner in Bodenheimer, Jones & Szwak which specializes in insurance law and litigation against credit bureaus, some credit bureaus in the United States maintain a VIP database of special consumers such as members of Congress, judges, actors and celebrities. The VIP database is specially administered by the bureau, which ensures the credit report of the consumer is accurate and not negatively handled. The database exists because individuals in the VIP database could cause significant problems for the bureaus, including negative publicity and legislative action which could adversely affect the industry. So far an economic model to describe this industry has not been attempted, while the fundamentals are counter intuitive to any market known, since other industries (finance, banking, insurance) sponsor credit bureaus to process information while consumers pay bureaus to receive that information. The utility of the consumer is hard to calculate since the consumer is given no recourse to correct mistakes processed about them, hence the dynamics of this triangle involving consumers, credit reporters, and sponsoring industries remain undefined.
List of credit reporting agencies
- Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 512. ISBN 0-13-063085-3.
- Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press
- Avery, Robert B.; Calem, Paul S.; Canner, Glenn B. (2004). Credit Report Accuracy and Access to Credit (PDF). Federal Reserve Bulletin, Summer 2004. Washington, D.C. 20551: U.S. Federal Reserve. p. 26.
- 6 Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press
- Garrett, Joseph C. (20 January 2012). "Why Is It Important To Know My Credit Score?". Know My Credit Score. Retrieved 21 February 2012.
- Experian Statutory Credit Report
- Equifax Statutory Credit Report
- Callcredit Statutory Credit Report
- David Baldock (Creator), James Scurlock (Directory) (March 10, 2006). Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (Television Documentary). Mainstage Productions. Event occurs at 43:38.
- Hillman, Richard J. (July 31, 2003), "Statement for the Record Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate", Limited Information Exists On Extent of Credit Report Errors and Their Implications for Consumers (PDF), U.S. General Accounting Office, p. 22, GAO-03-1036T
- AGO Blog Moderator (December 18, 2007). "New credit score formula on horizon". Washington State Office of the Attorney General. Retrieved January 11, 2012.
- Weston, Liz. "Credit bureau move creates 'secret' scores". MSN. Retrieved January 11, 2012.
- David Baldock (Creator), James Scurlock (Directory) (March 10, 2006). Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (Television Documentary). Mainstage Productions. Event occurs at 1:22:01.
- David Baldock (Creator), James Scurlock (Directory) (March 10, 2006). Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (Television Documentary). Mainstage Productions. Event occurs at 1:22:30.
- World Bank GFDR Report
- Federal Trade Commission Governmental Page on Free Credit Reports
- Federal Trade Commission Governmental Page on FCRA and consumer rights
- OCC - Office of the Comptroller of the Currency
- State Bank of Pakistan FAQs about Credit Bureau
- List of UK Credit Reporting Agencies
- Consumer Financial Protection Bureau (CFPB) List of Consumer Reporting Agencies (CRAs) as of January 2015